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2005 (7) TMI 334 - AT - Income TaxDeduction u/s 10B - 100 per cent Export Oriented Undertaking - manufacture and export of pharmaceuticals - Whether the interest earned by the assessee in consequence of letters of credit for import of raw materials, margin money deposit set apart and earmarked by the Bankers from the overdraft account is essential part of the business activity or not - HELD THAT:- The business of the present assessee in the export-oriented undertaking did not include making deposit with banks and the interest earned from the deposits on account of letter of credit for purchase of raw materials has no link with the profits and gains of export business of the assessee and as to how it could be claimed as interest income derived from 100 per cent export-oriented undertaking. There is no nexus to show that the profits and gains are derived from hundred per cent export-oriented undertaking to which this section applies that the deposits has nothing to do with the manufacture or production of any article or thing. The interest income earned from deposits with the bank is not connected with profits and gains which are derived from hundred per cent export-oriented undertaking or from manufacturing any article or thing. The expression 'any profits and gains' derived by the assessee from a hundred per cent export-oriented undertaking to which this section applies as used in section 10B of the Act has a distinct but narrow meaning and it cannot receive a flexible or wider concept. The assessee is entitled to claim deduction of the amount which it derives as direct profit by export of manufactured goods in its newly established hundred per cent export-oriented undertaking. Any indirect or incidental profit cannot be regarded as profit earned out of the main business activity. The ratio of the decision of the Hon'ble Apex Court in the cases of Pandian Chemicals Ltd.[2003 (4) TMI 3 - SUPREME COURT] and Cambay Electric Supply Industrial Co. Ltd.[1978 (4) TMI 1 - SUPREME COURT] has finally settled this issue. It is clear from the provision itself that deduction of such profits and gains deprived from hundred per cent export oriented undertaking must be understood as something which direct and inextricably linked to the assessee's industrial undertaking. But in this case, the interest is earned on margin money deposited for letter of credit for import of raw materials which has no connection with the profits and gains derived from hundred per cent export-oriented undertaking. Respectfully following the decisions of the Hon'ble Apex Court in the cases of Pandian Chemicals, Sterling Foods, Cambay Electric Supply Industrial Co. Ltd., etc. we confirm the orders of the lower authorities. In the result, the appeal of the assessee is dismissed.
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